Fair Credit Reporting Act (FCRA) of 1969

The Fair Credit Report Act (FCRA) (15 USC 1681) became effective on April 25, 1971. The FCRA is designed to regulate the consumer reporting industry; to place disclosure obligations on users of consumer reports; and to ensure fair, timely, and accurate reporting of credit information. It also restricts the use of reports on consumers and, in certain situations, requires the deletion of obsolete information. Banks may be subject to the FCRA as:

• Credit grantors.

• Purchasers of dealer paper.

• Issuers of credits cards.

• Employers.

Generally, the FCRA does not apply to commercial transactions, including those involving agricultural credit.

It does not give any federal agency authority to issue rules or regulations having the force and effect of law. The Federal Trade Commission (FTC) has issued a commentary on the FCRA (16 CFR 600.1-600.8). That commentary provides guidance to consumer reporting agencies, customers, and consumers on the FTC interpretation of the act.

The consumer report may be a written or oral communication that bears on a consumer’s credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Furthermore, it must have been used, expected to be used, or collected in whole or in part for the purposes listed in 15 USC 1681a(d). A report containing information only about transactions and experiences between the consumer and the institution making the report is not a consumer report.

Employers often rely on information contained in consumer credit reports to decide whether to hire, promote or retain applicants and employees.

The Credit Reporting Act of 1970 (FCRA) governs the use of consumer reports in all employment decisions.

Under the FCRA, an employer may obtain an applicant's or employee's consumer report for employment related purposes if it (1) gives the applicant or employee a clear and conspicuous written disclosure (in a document consisting solely of the disclosure) notifying him or her that a consumer report may be obtained and (2) obtains written authorization from the applicant or employee.

An employer may not obtain an investigative consumer report under the FCRA unless it (1) provides a written disclosure that an investigative consumer report may be made, including a statement to the effect that the consumer may request additional disclosures regarding the nature and scope of the investigation, as well as a written summary of his or her rights under the statute, and (2) certifies to the consumer reporting agency that it has made the above disclosures and that it will comply with any requests for additional disclosures.

Employers who do utilize investigative consumer reports, must supplement their disclosure to comply with additional requirements, as follows:

Sample Investigative Report Disclosure Statement

"By this document, [the employer] discloses to you that a consumer report, including an investigative consumer report containing information as to your character, general reputation, personal characteristics, and mode of living, may be obtained for employment purposes as part of the pre-employment background investigation and at any time during your employment. Should an investigative consumer report be requested, you will have the right to demand a complete and accurate disclosure of the nature and scope of the investigation requested and a written summary of your rights under the Fair Credit Reporting Act. Please sign below to signify receipt of the foregoing disclosure."

Under the FCRA, as soon as an employer intends to take adverse action against an applicant or employee based wholly or partly on the information contained in a consumer report, the employer must first provide the applicant or employee with a copy of the report, along with a written description of his or her rights under the statute (including the right to request disclosure of the nature, sources and recipients of any credit report). According to the FCRA, "adverse action" includes the "denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee."

Whenever any adverse action is taken against an applicant or employee, either partly or wholly because of information contained in a consumer report, the employer must provide him or her with oral, written or electronic notice of the adverse action as well as the name, address and phone number of the consumer reporting agency that furnished the report and a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to explain the specific reasons behind the decision. Id. at § 1681m(a). The applicant or employee must also be notified of his or her right to dispute the accuracy of the report.

Pursuant to the FCRA a consumer reporting agency will be able to furnish a consumer report for employment purposes only if (1) the employer certifies that it will comply with the FCRA’s disclosure and adverse action requirements (see above) and that the information will not be used in violation of any applicable Federal or State equal opportunity law or regulation, and (2) the consumer reporting agency provides a written summary of the consumer's rights under this statute along with the report. The FCRA also prohibits a consumer reporting agency from furnishing a consumer report that contains medical information without first getting consent from the consumer.

The FCRA, as amended, specifies damages for both willful and negligent noncompliance with the Act. Any employer that willfully fails to comply with the requirements set forth in the FCRA will be liable to the applicant or employee for actual damages, punitive damages, costs and attorney's fees (although the Act limits actual damages in this situation to an amount not less than $100 and not more than $1,000). Should an employer willfully obtain a consumer report under false pretenses or without a permissible purpose, the employer will be liable to both the consumer reporting agency and to the applicant or employee for their actual damages sustained or $1,000, whichever is greater. If an unsuccessful motion, pleading or other paper is willfully filed "in bad faith or for purposes of harassment," the FCRA will award reasonable attorney's fees to the prevailing party.

An employer who negligently fails to comply with the FCRA (e.g., neglects to put the disclosure in a separate document or to provide a copy of the report before taking adverse action), the employer shall be liable to the applicant or employee for actual damages, costs and reasonable attorney's fees.

Click here to download the full text of the regulations.

Source: Federal Trade Commission

Update 10/7/08


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